Margins hit by falling hardware ASPs and engineer rates

Hertfordshire-based reseller CAE Technology Services edged towards a £50m sales milestone in financial year 2011 against a bleak economic backdrop – but no such progress was made on the bottom line.

The firm reported operating profits of £2m and net income of £1.38m, both largely unchanged on the previous fiscal year, but turnover spiked up 17.6 per cent to reach £49.8m, according to a Companies House filing.

In a director's statement, MD Justin Harling said the "recessionary macro economic environment" had been coupled with "a technology market experiencing an exciting period of development.

"The challenge for customers was to deliver greater benefit from technology budgets that were constrained by overall business performance," Harling said.

Administration expenses jumped 17.5 per cent to £9.4m – and two-thirds of the increase was due to staff costs with further expense incurred from investment in demo systems, training and specialist contracted resources, Harling said.

The reseller employed 42 sales people in the year down from 44 in fiscal 2010 but the number of admin workers and engineers climbed from 63 to 70.

Harling revealed gross margin had fallen 0.7 per cent due to pricing pressure on kit and techie staff rates, and after the business delivered a digital media project "at no margin" to win over a customer.

Service desk, monitoring and management services were extended during the year with the deployment of additional tools and a second services site in Hounslow.

CAE said it would continue to invest and planned to hit EBITDA of 5 per cent of turnover, noting that the slight fall to 4.3 per cent in fiscal 2011 was still way ahead of the "majority of the IT reseller market". ®